Three Ways Credit Unions are Healing Broken ARMs

With the Fed poised to take action to ease the credit crunch that has overtaken the financial industry, credit unions continue to weather the storm and show their value to members through products and services designed to help them through these rough times.


Ben Bernanke and the Federal Reserve are expected by many to lower the Federal Funds target rate by 25 to 50 basis points this week as the Fed Funds futures rate stands at 5.00%.  This is in response to the recent market turmoil brought about by the credit crunch and issues in the mortgage market.  Many are hoping to see this rate decrease so short-term money becomes cheaper for financial institutions to borrow, and therefore increase liquidity. 

How have these market conditions affected credit unions?  They seem to have persevered through this current market.  Credit union delinquency rates are still well below that of the overall mortgage and banking industries. The Mortgage Bankers Association released quarterly delinquency survey results on September 6, stating a delinquency rate of 5.12% for all outstanding mortgages.  Credit unions had an overall real estate delinquency rate of 1.01%, with a reportable delinquency rate (more than 60 days delinquent) of 0.44%.

Credit unions have continued to improve real estate lending performance despite a flat market with first mortgage originations topping $28.9 billion in the first half of 2007, up 5.9 percent from the $27.3 billion originated in the first six months of 2006. As expected, the growth is coming from fixed rate firsts, which account for just over two-thirds of all first mortgage originations year-to-date versus 60 percent a year ago.

With this good news, there have still been a few credit unions affected in the subprime and real estate investment areas.  Huron River, New Horizons Community, and Norlarco have made the headlines by investing in a Florida land scheme that went under.  Cal State 9 had issues with some second mortgages they underwrote in which they were unaware of the underwriting of the first.

Due to their solid balance sheets, many credit unions are proactively helping individuals through subprime mortgages they may have with another originator.  These credit unions are implementing programs such as the following to address this issue:

  • Partnering with the GSEs (Fannie Mae and Freddie Mac) for loan products and programs that have been established to help members refinance.
  • Forming in-house programs with terms that are specifically designed to help individuals refinance out of subprime loans.
  • Becoming active in the local community by creating awareness, holding seminars, partnering with credit and financial counselors, and forming hotlines to see what members’ needs are.

For more information, access “The Subprime Trap: Helping Members Fix Broken ARMs,” a webinar recording brought to you by Callahan & Associates, to learn about which credit unions are implementing these programs and how they are doing so in a time when credit unions can truly make a difference.




Sept. 17, 2007



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